Pricing Under Distress

S. Boragan Aruoba, Andrés Fernández Martin, Daniel Guzmán Girón (), Ernesto Pasten and Felipe Saffie

No 32538, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We isolate the anticipation effect of uncertainty on firms’ price-setting behavior using a quasi-natural experiment: the 2019 Social Uprising in Chile. During the 31-day period following the outbreak of nationwide protests and riots, the frequency of supermarket price changes fell by about half, while the average size of adjustments rose by about half. Suppliers’ prices remained stable, and local intensity of riots does not explain the variation, suggesting a forward-looking mechanism. A menu cost model with news about future idiosyncratic demand volatility replicates these dynamics. Anticipated uncertainty amplifies the short-run real effects of monetary policy, highlighting the importance of timing.

JEL-codes: E31 (search for similar items in EconPapers)
Date: 2024-06
New Economics Papers: this item is included in nep-cba and nep-mon
Note: ME
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